// Equity Fund Selection

Go beyond historical attribution and peer rankings and quantify the exact tradeoffs between active management, smart beta and passive indexing.

Chart a course and maintain it.

Successive revolutions in the equity landscape — such as ETFs, strategic beta, and the insourcing of portfolios by some asset owners — have led to significant and ongoing strategic shifts among allocators.

Active management can still play an important role in certain circumstances, but selection decisions are under greater scrutiny than ever due to cost and performance concerns.

Empirically can help you identify precisely where and how it makes sense to use active strategies, which managers are most likely to deliver the performance parameters you seek in the future, and the most opportune time to select and deselect them. Together with your other diligence efforts, you'll have the conviction you need to make multi-year allocation decisions with confidence.

Equity Strategy Analytics Suite

Leveraging advanced technology, proprietary data, and deep expertise to support clients' selection and review efforts.

EPSE

Advanced strategy simulation with complex constraints.

Replicator

Decomposition, replication and substitution of return sources.

Premortem

Flexible scenario analysis, decision modeling and risk evaluation.

StateSpace

Modeling and testing of time series and non-stationary parameters.

Key Diligence Questions

Select a topic area to view examples of the types of questions we can answer, after customization to the case at hand, to support review and evaluation processes.

  • Manager Evaluation

    • Has a manager demonstrated evidence of a repeatable alpha generation process? What are the sources of the edge?
    • What is the estimated distribution of excess returns that a strategy will generate over the next 1 and 3 years?
    • What is the probability that a manager with no skill would have achieved results that were as good or better?
    • How much of the value added is attributable to the Portfolio Manager's ability, versus the investment strategy, versus the infrastructure and capabilities of the asset manager?
    • How should managers with different track record lengths be compared?
  • Timing Considerations

    • Is now likely to be an opportune time to invest or divest from a strategy?
    • How prone is a strategy to "bad runs", or a skewed excess return distribution? How correlated are these to other external managers in the portfolio?
    • How sensitive is a manager's performance to particular market conditions, macroeconomic environments or factor performances?
    • Is a recent run of strong or poor performance likely to mean revert, or is it sustainable?
  • Cost, Value and Passive Alternatives

    • What is the best passive investment alternative (such as an ETF or index) available for this strategy? How does its risk and net-of-fee return profile compare?
    • What is the estimated probability that the strategy will underperform its Best Passive Alternative™ over the next 1 and 3 year periods?
    • How unique are the performance characteristics being offered by this strategy, versus available alternatives? How valuable are they as a component of the broader portfolio?
  • ESG and Non-Financial Priorities

    View our ESG Capabilities for more detail about how we can help you rigorously address considerations related to:

    • Responsible investment
    • Climate change
    • Manager diversity
    • Sharia compliance
    • Other custom priorities
  • Integrative Decision Making

    • Which candidate strategy achieves the best balance between multiple competing objectives?
    • Which fund offers strong long-run return potential while minimizing the risk of a near-term drawdown beyond a certain threshold?
    • Which allocation choice is most robust across broad ranges of uncertain variables, such as macroeconomic conditions?
    • How would the conclusions change if the weights of the objectives were different?
    • Planning ahead, what tolerance for underperformance should be permitted before terminating the manager?

Featured Insight //

Examining Rules of Thumb

Discover whether conventional wisdom regarding active share, concentration and portfolio turnover can be relied on for fund selection.

Read Now >>

More Than Just Public Equities

Explore how we power better due diligence across multiple asset classes.

Next STEP Read about the advanced technology behind Empirically's capabilities, or book an introductory discussion.